Tuesday, February 22, 2011 2:00 pm
Permian Basin operators responding to the Oil Report's annual Horizons survey detailed plans for increased activity this year, expanding their drilling budgets. Spending is expected to range from similar to 2010 levels to as much as twice last year's amounts.
Amarillo Economist Karr Ingham pointed out that the December rig count averaged 287 rigs, far higher than when oil prices hit a record $147 a barrel in July 2008. His theory is that crude prices are high enough to spur drilling projects yet costs are being kept at an economic level.
Operators injected a note of caution, however, saying difficulty obtaining drilling rigs or completing wells could reduce the number of wells drilled this year. Others noted that costs had begun creeping higher last year and that trend is expected to continue in 2011.
"The industry outlook is mixed," said Odessan Kirk Edwards, president of MacLondon Royalty. "It looks to be a banner year for producers with properties that produce oil. The uncertainty in the Middle East and a recovering economy in the United State bodes well for a continued high oil price.
"Contrary to that is our ever-languishing natural gas price. Those producers will do well to just hold leases for the next year or so in an effort to drill them under a higher pricing scenario. Technology improvements in fracturing and horizontal drilling have created an ever-increasing supply of natural gas and that is reflected in the current price and the futures price for the next couple of years. Many prospects just can't be economically drilled with natural gas prices in the $4 range."
Edwards continued, "Locally, the Wolfberry and Avalon Shale plays will continue to keep Midland and Odessa and the surrounding towns as busy or busier than we have seen in quite some time. Service companies and local oil producers will have a banner year in 2011. Probably even better than 2008 when oil prices were higher."
Baker Hughes is forecasting the rig count in its Permian Basin segment will grow 30 percent this year, the fastest of the domestic segments it tracks. The company also forecasts that the number of rigs drilling for crude will surpass those drilling for natural gas in the first quarter of the year.
Another concern expressed by operators responding to the survey was the increase in regulations, particularly by federal regulators. Some operators say they fear last year's oil spill in the Gulf of Mexico has also cast a spotlight on onshore operations. Operators are particularly concerned about any new regulations limiting or eliminating hydraulic fracturing, which they say would impact the Permian Basin. Any new regulations, whether at the state or federal level, they say, will result in more paperwork and higher drilling costs, which will end up being passed along to the consumer and could result in fewer wells being drilled.
Even as operators watch developments in Austin, Santa Fe and Washington D.C., they say they are confident crude prices will remain at a healthy level, allowing them to drill prospects.
Mella McEwen can be reached at email@example.com.